RIA and institution building in Bulgaria

Document Sample
RIA and institution building in Bulgaria Powered By Docstoc
					RIA and institution building in Bulgaria



           Dr. Krassen Stanchev
  Institute for Market Economics – Sofia
              (www.ime-bg.org)

               Private Sector Development in the
                    Black Sea Region, OECD,
3/28/2012        Thessaloniki, 23-24 Feb, 2005     1
  Summary of reforms
      Transition to a pluralistic democracy (1989-1991),
      Successful start of reforms in 1991,
      Followed by a new “edition” of central planning (1993-
       1995),
      And hyperinflation and political crisis (1996-1997),
      Resolved via elections and a Currency Board (1997).
      Since 1997 - a new recovery with 4% average annual
       growth, finalized privatization of enterprises and banks.
      In 2001, the country to voted out its political
       establishment that led reforms from 1989 to 2000.
                      Private Sector Development in the
                           Black Sea Region, OECD,
3/28/2012               Thessaloniki, 23-24 Feb, 2005        2
  Bulgaria before and after 1998
  Indicators (annual      1990-1997                        1998-2003
  average)
  Inflation               210.1                            5.65
  Inflation tax           57.7                             7
  GDP Growth              - 4.7                            4.16
  Investment growth       - 8.8                            19.2
  Budget                  - 6.3                            0.05
  Debt/GDp                168                              71.2
                          1990-1996                        1997-2003
  FDI (US$)               63.2 mln.                        857.1 mln.
  FDI (% of GDP)           0.8
                       Private Sector Development in the   6
                            Black Sea Region, OECD,
3/28/2012                Thessaloniki, 23-24 Feb, 2005                  3
  Background
      The initiative to start RIA process had emerged with
       private economic think tanks, not “from above” and to
       some extends independently from different professional
       and representative organization. To an extent the
       leadership used to belong and still belongs to IME, so the
       examples I use are mostly from my own RIA experience in
       Bulgaria.
      It was a response to public (societal) demand for better
       and transparent regulations. Before 1998, there was a
       repeated situation of rational ignorance, both on the side
       of the public and the government.
                      Private Sector Development in the
                           Black Sea Region, OECD,
3/28/2012               Thessaloniki, 23-24 Feb, 2005         4
                Time tax in Bulgaria …
                25 % of managers’ time is devoted to dealing with the government (FIAS
                2004)
                               Share of senior management's time spent dealing with regulations
                                                      (Mean-percent)

          30


          25

          20
Percent




          15


          10

           5


           0

                   an           an            va               Private Sector Development in the d
                                                              an             tan           ia         n              via        ia          ria
               is t          zst          ld o             ist                          an
                                                                          h s Sea Region, OECD, Po la           s la        er b        lga
            jik             y            o            be
                                                         k          Blackk             m                       o           S
                                                                                                                                     Bu
          Ta 3/28/2012  yrg          M                                za            Ro                      ug
                      K                            Uz              Ka
                                                                 Thessaloniki, 23-24 Feb, 2005            Y                                  5
  Labor market rigidities [World Bank,
  Doing Business]

                                                Condition of Employment Index

            100      Least Regulated Conditions - Global
                                                                                           89         90        91
             90                                                       85         85
                                                           77
             80
             70                               61
             60
             50                  46

             40
             30      22
             20
             10
              0
                  Hong Kong   Germany       EU 15       Russian     Romania   EU 2004    Croatia   Bulgaria   Turkey
                   (China)                             Federation             Entrants




                                         Private Sector Development in the
                                              Black Sea Region, OECD,
3/28/2012                                  Thessaloniki, 23-24 Feb, 2005                                               6
  Regulation of labor
      On every 100 units of wage, the employer’s
       transfers to the state budget grew from
       56% in 1991 to 78% in 1996, and 75% in
       1999.
      The heaviest part of it the combined
       burden of contributions to state run
       pension and healthcare funds, currently
       (2005) 42.7%.
                  Private Sector Development in the
                       Black Sea Region, OECD,
3/28/2012           Thessaloniki, 23-24 Feb, 2005     7
      Regulating private sector
In a contrast to lacking or delayed regulations in the financial sector, private
   enterprise has been, during most of the reform years, heavily regulated
Significant increases of entry barriers (1995, 1997-1998 and 2001-2002)
   coincide with changes in the government.
In 1997, the government has abandoned discretion in monetary (and
   macroeconomic) affairs but kept it on macroeconomic level.
Recently, new government regulations are explained by EU accession, but,
   whatever the reason, they retain interference in private transactions.
In 1999, private sector’s unregistered compliance costs were 12% of GDP,
   and it was 2.5 times cheaper to operate if one does not comply with
   regulations.

                              Private Sector Development in the
                                   Black Sea Region, OECD,
    3/28/2012                   Thessaloniki, 23-24 Feb, 2005                  8
  Taxing the middle class (stylish calculation
  for 2004)
      Imagine a Bulgarian, 30-35, working on a contract or as sole proprietor, who
       has monthly income of BGN 1,000:
      He/she pays 29% (compulsory) pension insurance and 6% (mandatory)
       health insurance on BGN 850; in other terms he/she contributes to quasi-
       government funds BGN 297.5.
      The income tax on the remaining BGN 702.5 is BGN 149.
      The remaining BGN 553.5 is for consumption. According to the MOF and NSI
       assumptions he/she will spend 80% of this amount on VAT-taxed products
       and services, i.e. another BGN 74 will go back to the government.
      If he/she drives a car and consumes 50 liters a month, duties are BGN 22.
      If he/she smokes and drinks as the “average” Bulgarian, duties are BGN 12.
      What remains is BGN 445. The calculation is not complete.

                           Private Sector Development in the
                                Black Sea Region, OECD,
3/28/2012                    Thessaloniki, 23-24 Feb, 2005                     9
  Tax squeezes (stylish example for 2004)
      Forecasted average wage for the next year is BGN 307.
      A worker would pay (compulsory) BGN 32.77 insurance
       contributions; the employer – BGN 98.32.
      On the remaining BGN 274.23 the employee owes in come tax
       of BGN 34.30; his/her net wage is BGN239.93.
      Employer’s costs are: BGN 405.32.
      BGN 165.39 go to the government, being squeezed between
       employee’s actual work and what he/she gets from the
       employer.
      The amount squeezed is BGN 40.8%, i.e. the worker gets less
       than 60% of what he/she contributes to the economy.
                       Private Sector Development in the
                            Black Sea Region, OECD,
3/28/2012                Thessaloniki, 23-24 Feb, 2005        10
  Procedural complexity in contract
  enforcement [World Bank, Doing Business]


                                                    Procedural Complexity Index


            100
            90
                          Least Complex - Global
            80
                                                                                                           69
            70
                                                                                       60        61
                                                                             58
            60                                                      55
                                               48         50
            50
                                   38
            40
                     29
            30
            20
            10
              0
                  Australia*     Turkey     Russian     Croatia   EU 15   EU 2004    Romania   Germany   Bulgaria
                                           Federation                     Entrants




                                                        Private Sector Development in the
                                                             Black Sea Region, OECD,
3/28/2012                                                 Thessaloniki, 23-24 Feb, 2005                             11
  Population above 15 years of age

                                                    Million     % of those above 15



            Employed by the private sector                1.9                         28

            Employed in government owned (not             0.3                          5
            subsidized) industries
            Employed in government financed               0.6                          9
            activities
            Unemployed, students, other                   1.5                         22

            Pensioners                                    2.4                         36

            Total                                         6.7                     100

                                 Private Sector Development in the
                                      Black Sea Region, OECD,
3/28/2012                          Thessaloniki, 23-24 Feb, 2005                           12
  1991-2000 Frequency of Amendments to 15 Key regulations
  on Taxes, Companies, Social Welfare, Accounting and
  Economic Statistics

                                      1996         32
       1991   11                     1997         23
       1992   10
                                      1998         40
       1993    9
       1994    5                     1999         44
       1995    10                    2000         14

    For 10 years it sums up to 198 amendments to
    basic framework to engage in business.


                     Private Sector Development in the
                          Black Sea Region, OECD,
3/28/2012              Thessaloniki, 23-24 Feb, 2005     13
  Costs of Compliance in Accession Countries:
  Bulgaria
      Rate of transposition of EU Law is 1:3-4, on one EU entry barrier
       correspond 3-4 barriers in Bulgaria’s implementation. Meanwhile, the
       Acquis expands and changes after due harmonization of the
       applicants
      Estimated compliance costs in Bulgaria, in 2000 was 12% of GDP; it is
       at least higher rate of compliance than in EU.
      In a sense, the adoption of the Acquis can reduce these costs but it
       rarely happens. There are different reasons: a) to some extend there
       is an administrative self-interest; b) it is easier to endow duties to the
       administration when EU accession struggles to meet deadlines; c)
       there is no tradition to calculate the impacts; d) there is distrust on
       business and grass-root level.
                           Private Sector Development in the
                                Black Sea Region, OECD,
3/28/2012                    Thessaloniki, 23-24 Feb, 2005                  14
Leadership in bribing …
4.8 % of turnover is for bribing (FIAS 2004)
                                                      A cross-country comparison of bribe tax (mean)


                          6

                          5
% of annual total sales




                          4

                          3

                          2

                          1

                          0
                                                            a




                                                                                                                                          ria
                                                                                                      ia
                                                                  ia




                                                                                                                   an
                                                                               va
                                nd



                                             an




                                                                                            n
                                                          vi




                                                                                                                                  n
                                                                                                    an
                                                                  rb




                                                                                          ta




                                                                                                                                ta



                                                                                                                                        ga
                                                                                                                st
                                                                              do
                                                        la
                              la



                                          st




                                                                                        hs



                                                                       Private Sector Development in the




                                                                                                                             zs
                                                                Se




                                                                                                  om




                                                                                                                  i
                                                      os
                                           i
                          Po




                                                                                                                                      ul
                                                                                                              jik
                                                                            ol
                                        ek




                                                                                                                            gy
                                                                                      ak
                                                  ug




                                                                                                                                      B
                                                                          M




                                                                                                R
                                     zb




                                                                                                           Ta
                                                                            Black Sea Region, OECD,
                                                                                    az




                                                                                                                        yr
                                                  Y
                                     U




                                                                                    K




                                                                                                                        K
                               3/28/2012                                 Thessaloniki, 23-24 Feb, 2005                                       15
FIAS 2004: 60 % of Bulgarian companies think that government is
inefficient




                           Private Sector Development in the
                                Black Sea Region, OECD,
       3/28/2012             Thessaloniki, 23-24 Feb, 2005        16
  Private sector led reforms (1): Regulatory reform
  [Poland, Estonia & Bulgaria]

       Poland, Lithuania and Estonia, and, following their example,
        Bulgaria introduced a reform, which:
   1.   Limits the introduction of new barriers to acts of the parliament;
   2.   Restricts the areas of discretionally licensing to a listed number
        areas; 9 in Poland, 16 – in Estonia;
   3.   Introduces review and comment periods, compulsory public
        discussions via regulation impact and cost-benefit analysis and
        implementation reviews;
   4.   Establishes the so-called ‘silent consent’.
   In Bulgaria, an original draft bill followed this example but, after
        legislative and executive consultations, ‘2’-list was increased to 39,
        ‘3’ was soften and ‘4’ - eliminated. The debate is not yet finished.

                          Private Sector Development in the
                               Black Sea Region, OECD,
3/28/2012                   Thessaloniki, 23-24 Feb, 2005                 17
  Private sector led reforms (2): Nominal tax rate reforms in
  2001-2005

                               2001     2002     2003     2004   2005
            Corporate                                     19.5    15
            tax                 28      23.5     23.5
            Income             20-       18-             12-29   10-25
            tax                38        29      15-29
            Welfare State Gazette, 2001 – 2004
                   Source:                                42.7   42.7
            contrition 42.7 42.7                 42.7
            VAT                 20       20       20       20     20




                             Private Sector Development in the
                                  Black Sea Region, OECD,
3/28/2012                      Thessaloniki, 23-24 Feb, 2005             18
  Private sector led reforms (2): Bulgaria’s Company Registration
  Reform and the Best Practice

                              Now and scheduled                Best Practice
                              reform

   Single Registration        No to Yes                        Yes
   Form
   Single ID #                No to Yes                        Yes
   Court Approval             Yes to No                        No
   Single Point of Contact    No (Unclear)                     Yes

   Internet Registration      No (Unclear)                     Yes
   Principle of Silent        No ((Unclear)                    Yes
   Consent
                           Private Sector Development in the
                                Black Sea Region, OECD,
3/28/2012                    Thessaloniki, 23-24 Feb, 2005                     19
  RIA and the Reform Agenda
      In the past private sectors supported the key reforms
       (privatization, currency board and EU and NATO)
       deregulated:
      Currently, it ad hoc applies RIA to EU regulations;
      There is a consistent advocacy for cost-benefit analysis of
       regulations by government agencies: responding to this
       demand the government drafted amendments to its
       procedures and to the normative acts bill (with a key
       contribution of the private sector);
      It supports education in RIA-related techniques and is
       launching an Internet navigation into the practices of
       other countries;
      There are examples of state of the act analysis used to
       promote judicial, healthcare and in the
                        Private Sector Development
                                                   pension reforms.
                             Black Sea Region, OECD,
3/28/2012               Thessaloniki, 23-24 Feb, 2005          20

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:6
posted:3/28/2012
language:
pages:20